Due Diligence Report November 2013 PAK: National Trade Corridor Highway Investment Program Due Diligence Review of NTCHIP Tranche 2 Hassanabdal - Havelian Expressway, E 35, Package II Prepared by National Highway Authority, Ministry of Communication, Islamic Republic of Pakistan for the Asian Development Bank (ADB). This due diligence report is a document of the borrower. The views expressed herein do not necessarily represent those of ADB's Board of Directors, Management, or staff, and may be preliminary in nature. CURRENCY EQUIVALENTS (as of 13 November 2013 ) Currency Unit – Pakistan rupee/s (PRs) PRs1.00 = $0.00929 $1.00 = PRs 107.54 ABBREVIATIONS ADB – Asian Development Bank APs – Affected persons BOR – Board of Revenue CAP – Corrective Action Plan DDR – Due Diligence Review DPAC – District Price Assessment Committee EA – Executing Agency GRM – Grievance Redress Mechanism IVSC – International Valuation Standards Committee IVS – International Valuation Standards IRP – ADB’s Involuntary Resettlement Policy IR – Involuntary Resettlement LAR – Land Acquisition and Resettlement LAA – Land Acquisition Act 1894 LAC – Land Acquisition Collector LARP – Land Acquisition and Resettlement Process LARF – Land Acquisition and resettlement Framework MFF – Multi-tranche Financing Facility NTCHIP – National Trade Corridor Highway Investment Program NHA – National Highway Authority RC – Replacement Cost RICS – Royal Institute of Chartered Surveyor A. Introduction 1. Project background: The National Trade Corridor Highway Investment Program (NTCHIP) of the Government of Pakistan is funded by the Asian Development Bank (ADB) through a Multi-tranche Financing Facility (MFF). The MFF consists of several tranches, each covering several subprojects. The on-going tranche 1 of the MFF comprises section 11 of Faisalabad to Khanewal Motorway Project (M4) in the Punjab province of Pakistan. The Hassanabdal–Havelian Expressway (E 35) is a new project proposed by National Highway Authority (NHA-the project executing agency-EA) for ADB’s financing as tranche 2 of the MFF. The project is located in Khyber Pakhtunkhuwah (KPK) province. The land acquisition and resettlement (LAR) impacts of the project have been rated “significant” for Involuntary Resettlement Policy (IRP) while no impacts have been recorded on Indigenous Peoples (IPs). Accordingly the project has been rated as category A for Involuntary Resettlement and C for Indigenous Peoples Policy (IPP) more details in LARPs of E 35, package II. 2. In anticipation of ADB’s financing of the Project, the National Highway Authority acquired about 412 acres of agriculture land in 2010-11 NHA also prepared a land acquisition and resettlement plan (LARP) in accordance with updated land acquisition and resettlement framework (LARF), Pakistan’s Land Acquisition Act of 1894 (LAA) and the ADB’s Safeguard Policy Statement 2009 (SPS). The land awards were announced in 2011 and payments went underway in 2011-12. More than 90% displaced persons have been compensated for land, structures, trees and crops so far. The LARP contains a comprehensive entitlement matrix (annex 1) covering all the LAR impacts with full replacement cost to be paid as compensation including the LAA based market rate plus 15 solatium, and SPS’s full replacement cost including the rehabilitation and resettlement support and allowances to the displaced persons (DPs) including the poor and vulnerable people The LARP is under review and full scale compensation (LAA and SPS) will be provided to the DPs upon approval of LARP by ADB. See more details in LARP in executive summary of LARP and chapter 2. B. Purpose of Due Diligence Report (DDR) 3. This DDR of social safeguards has been undertaken for tranche 2 (E 35) to ascertain whether (i) land acquired for both projects using the LAA methodology (LAA procedures and mechanisms adopted by Punjab and KP Boards of Revenue (BOR) conform to the ADB’s SPS for Involuntary Resettlement IR Policy) and compensation criterion of full replacement cost as compensation for all affected assets; (ii) the updated LARF of NTCHIP The critical aspect of this DDR is to examine whether (i) LAA compensation meets the ADB’s requirement of “Replacement Cost-RC”. The DDR also draws a comparison of the 2 methodologies (annex 2), and identifies any gaps in compensation at full replacement cost and recommends measures to address any price differential to be paid and implemented through a corrective action plan (CAP) to achieve compliance with ADB’s SPS. As required under SPS 2009, an independent land valuation study was also conducted to analyze the land acquired and compensation offered under the LAA/BOR methodology meet the full replacement cost criterion. 1 Section 1 of M4 consists of (a) 58 km long carriageway/motorway and (b) 4 interchanges at different locations with 58 km section. 2 C. Need for land valuation study 4. The tranche 1 of the MFF was processed based on ADB’s Involuntary Resettlement Policy of 1995 (IRP), which has been updated to form a new document called Safeguard Policy Statement (SPS) 2009. The SPS, which became effective June 2010, requires that all the projects processed after the SPS became applicable follow the SPS principles and delivery mechanism during planning and implementing the resettlement plans. The SPS also requires that full replacement cost is paid to the displaced persons as compensation for all affected assets. The SPS defines full replacement cost as “replacement cost consists of the following: (i) fair market value; (ii) transaction costs; (iii) interest accrued; (iv) transitional and restoration costs; and (v) other applicable payments, if any. Where market conditions are absent or in a formative stage, full replacement cost will be determined by consultation with the displaced persons and host populations to obtain adequate information about recent land transactions, land value by types, land titles, land use, cropping patterns and crop production, availability of land in the project area and region and other related information. The SPS also requires that the borrower/client will also collect baseline data on housing, house types, and construction materials. Importantly, the SPS requires that qualified and experienced experts are required to undertake valuation of acquired assets and that in doing so, depreciation of structures and assets should not be taken into account. 5. In order to meet this requirement of SPS, ADB and NHA engaged an international valuation firm; Colliers Int’l in April 2013 to undertake the valuation. The Colliers team undertook the study with logistic support provided by NHA. 6. The purpose of the land valuation study was to determine how replacement cost should be appraised using international appraisal standards in Pakistan for involuntary resettlement (IR). To ensure compliance with ADB’s safeguard policies, a central part of the study was to determine how the value of land and other assets could be assessed to meet ADB’s policy requirements and also satisfy the legal requirements of Pakistan. D. Scope of valuation study 7. The study undertook valuation of land properties of all types on a sample basis in all the 14 villages affected by the project. The valuation covered only the land (all types) parcels, while non-land assets including structures, trees and crops were excluded from the scope due to the government methodology and prices already approximating replacement cost. These villages were grouped into 4 clusters; cluster 1 & 4 included 4 villages each, while cluster 1 & 3 comprised of 3 villages each. Sampling was carried out on random sampling. The rationale for cluster based sampling to make the sampling representative of all the 14 affected villages including location of properties; on and off road, proximity to villages and different types of land and usage. Thus a 5% sample of affected land properties (150 properties) was selected from 14 villages. 8. Study limitations: The independent study has been undertaken first time ever in Pakistan to determine the replacement cost RC) of rural land acquired for the project. Except for international valuation standards, RICS and SPS guidelines on RC, no secondary data or a good reference point was available to the study for cross reference. The study methodology, therefore, evolved out of a consultation process held with key stakeholders including the key government agencies and ADB such as (i) provincial Boards of Revenue and District Revenue Officials who acquire land for public purpose projects, (ii) Ministry of Communication and National Highway Authority (NHA-Project Executing Agency), (iii) Federal Agencies including the 3 National Planning Commission-NPC, Economic Affairs Division-EAD; counterpart agency in signing of ADB’s loan and project agreements, (iv) the Central and West Asia Transport and Communications Division, (v) representatives of displaced persons and complainants, and (iv) ADB’s corporate compliance department. All sampled land parcels were visited and on-site discussions/consultations were held with local people as they gathered around the valuation sites. Table 1 provides valuation outcome and a comparison of BOR and Colliers prices. 9. The methodology the study adopted encountered limitations in accessing conclusive information controlled by BOR, district revenue office and land management offices of district courts. Written information was not available with revenue department to validate high price differential in some cases, which both parties (BOR/NHA and Colliers)